Report: Monterey Shale production "wildly optimistic"

Report: Monterey Shale production "wildly optimistic"

By now, you've probably heard the proclamations: California is on the brink of a modern-day oil boom but those studies are now coming under scrutiny.

By now, you've probably heard the proclamations: California is on the brink of a modern-day oil boom, and that the Monterey Shale formation, long a source of crude oil in Kern County could usher in another black gold rush.

Industry insiders and politicians, citing several recent studies, are literally gushing with optimism over the prospect of a protracted period of economic prosperity.

But those studies are now coming under scrutiny.

On Tuesday, a geoscientist from Canada released a report that concludes those rosey predictions are wildly optimistic.

But there's no doubt. There's still a lot of oil in the Monterey formation. In some places, crude still creeps to the surface, along with methane gas, struggling to escape the earth's subterranean grip.

But is there 15 billion barrels of oil in the shale rock buried deep inside the Monterey?

"It's not there. I don't see it," said David Hughes in an interview with 17 News in Denver back in October.

In his report, 'Drilling California,' Hughes zeroes in on two government reports.

In 2011, the U.S. Energy Information Administration estimated that of the 24 billion barrels of technically-recoverable shale oil in the lower 48 states, more than half of it is in the Monterey formation.

Another government report, from Intek Incorporated, done for the Department of Energy, says the Monterey Shale formation, just one-tenth the size of North Dakota's vaunted Bakken Shale formation, holds 15.4 billion barrels of technically-recoverable oil.

"I'm not sure where they got that number," Hughes said.

David Hughes spent 32 years with Canada's Geological Survey. He is now president of a consulting business, working with both oil companies and environmental organizations. Hughes is frequently asked to share his views on shale oil production, for example, at the annual conference of the American Geological Society in Denver, Colorado back in October.

In February he released 'Drill Baby Drill,' a detailed and critical analysis of proclamations of a U.S. shale revolution. Next week, Hughes will be a keynote speaker during a trans-Atlantic forum on global energy security.

Now he's out with a reality check on fracking the Monterey.

"I'm aware of no study that's looked at the data as closely as I have. I would consider my study to be a foundation," Hughes told 17 News.

Predictions of an oil boom in the Monterey have local politicians pumped up.

At a recent oil summit in Taft, Representative Kevin McCarthy told the crowd, "What could happen here in the Monterey, is what's happening in North Dakota."

It certainly could do that. According to that government report, it may take as many as 28,000 oil wells, at 16 wells per square mile, each pulling 550,000 barrels of oil over its lifetime, 60 years to pump that much oil out of the Monterey Shale essentially turning the land above the Monterey formation into a petroleum pin cushion.

Hitesh Mohan, the author of that government report says his figures were derived from technical reports and presentations from oil companies, including Occidental Petroleum, which owns the lion's share of oil leases in the Monterey Shale, at 1.6 million acres.

In fact, based on the number of new acres under lease right now on the Monterey, Mohan has raised his previous estimate.

The Energy Department meantime has actually downgraded its own estimate by two billion barrels.

"These are their assumptions and I went back into the database to validate their assumptions," Hughes said.

But Hughes says his analysis essentially invalidates Intek's assumptions, after analyzing oil well production data in different regions of the Monterey, going back to 1977.

And remember these wells are tapping oil reservoirs and not shale rock.

Hughes says he found no data to support Intek estimates that each shale oil well drilled in the Monterey Shale would produce upwards of 550-thousand barrels of oil in its lifetime

"And this was attributed to Occidental", Hughes said.

And he found few conventional wells in the Monterey that productive.

"I looked at all the Oxy wells drilled there in the last 30 years and maybe a couple of them had a recovery of over 550,000 barrels, but a tiny percentage. The average was much less than that," Hughes told 17 News.

Hughes calls the Intek production assumptions "extremely optimistic."

His own analysis put initial production rates at 50-to-75 percent less than the Intek estimates, and total oil recovery at 60-percent less.

Hughes believes extensive regions of high oil productivity in the Monterey "likely don't exist" and the estimate of 15.4 billion barrels of oil is "highly overstated."

One thing Hughes and Mohan agree on is this: drilling data from major plays in Texas and North Dakota show production rates on shale oil wells drop dramatically after a couple of years.

"The average lifespan of a shale oil well is three to four years. It's got a very sharp decline curve," said Mohan. "You get 60 to 70 percent of the production within the first two years. To maintain a certain level of production you have to continue drilling and drilling and manufacturing and putting in more wells and more wells," said Mohan.

Hughes points out that in making its long term estimates for fracking the Monterey, Intek uses production rates from conventional oil wells, which have a much longer lifespan than shale wells.

The Monterey straddles the San Andreas fault, and has been fractured and folded many times over geologic time, making shale oil deposits fragmented, at various rather than uniform depths. David Hughes says because it's so geologically complex, the Monterey poses technological challenges to producers.

"I think most of what we're going to find in the Monterey is oil that has migrated short distances and is caught in traps. But huge areas of source rock, covering 1,752 square miles than can be drilled at 16 wells per square mile are wishful thinking, having looked at the geology and all the production data," the geoscientist said.

Hughes said, "I see continued production, just not this spectacular ramp up with these wildly spectacular wells from new high-volume hydraulic fracking. So how much oil is going to be recovered? Maybe another billion barrels, but certainly not 15.4 billion."

A 17 News analysis of recently declassified data from new shale oil wells drilled in Kern County found precipitous declines in oil production after just two years, of between 40 to 90 percent.

Hitesh Mohan cautions that his estimates were made in the absence of hard data on oil production in the Monterey Shale.

"Let exploration go and let the hard data come out and these numbers will be refined," Mohan told 17 News.

Another set of unrefined numbers being tossed around is found in a USC study issued in March, a study funded in part by the Western States Petroleum Association.

Using Intek's data, USC researchers estimate that if the Monterey is aggressively developed, 2.8 million new jobs and more than 24 billion dollars a year in additional tax revenues to the state would be generated by the year 2020.

USC researchers caution their numbers are preliminary.

David Hughes says they should be viewed as "extremely suspect."

"I mean that's only seven years out. We're going to double California's oil production in seven years? I would say that's an extreme stretch of faith," Hughes said.

For the record, Occidental Petroleum, which holds the lion's share of oil leases on the Monterey, declined our request for an interview.

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